Pricing reliability options under different electricity price regimes

Investing in electricity production under a reliability options scheme

“…22 The values for investment and operational costs refer to an efficient new gas-fired plant (EIA, 2020). For the structural parameters of the stochastic process capturing the evolution of the price of electricity as well as the values of the strike price and the premium we refer to the Italian market (Andreis et al 2020). In particular, σ is the hourly rate that corresponds to an average yearly volatility that ranges from 0.26 to 0.53.…”

“…As is well known in the theoretical literature of electricity economics, the equilibrium of perfectly competitive electricity markets delivers the efficient level of power capacity, that is, the level at which the marginal investment cost equals the marginal loss attributed to the energy demand that remains unserved. 1 This implies that it would be unnecessary to provide an explicit remuneration for power capacity since the electricity market already provides enough incentives for new investments.…”

“…However, all these papers present qualitative discussions on ROs. To the best of our knowledge, the only paper that quantitatively analyzes the properties of ROs is Andreis et al (2020). In that work, the authors provide semi-explicit formulas to calculate the financial value of a RO.…”

Choosing a Price and Cost Combination—The Role of Correlation

“…207-11) are the most prominent examples for purely theoretical works comprising uncertainty in both the price and cost processes. Others studies with both types of uncertainty have applied this theory to a variety of fields such as renewable energy (Boomsma et al 2012), mining (Slade 2001), forestry (Wiemers and Behan 2004), information technology (Schwartz and Zozaya-Gorostiza 2003) and electricity systems reliability (Andreis et al 2020), to name a few.…”

Energy exchange among heterogeneous prosumers under price uncertainty

“…This is justified by the focus set on the investment decisions taken by agents who, due to the small size of their PV plants, are not able to influence the market's price.21 The GBM is largely used in the field of real options and renewable energy (Kozlova (2017) for a review of the literature). Specific discussion regarding its use in energy prices' dynamic approximation is found inBorovkova and Schmeck (2017) andAndreis et al (2020).22Zafar et al (2018) state that the negotiation of the energy price's is a challenging part of the SG set-up. The model presented byAlam et al (2013) sets the energy price of the micro-grid in a specific time slot to vary from 0 to the grid energy price Mengelkamp et al (2017).…”